Big pharmaceutical firms are learning to love their erstwhile enemies, makers of generic drugs

ONE recent evening, the most powerful man in the world posed an existential question to those around him. “If there’s a blue pill and a red pill, and the blue pill is half the price of the red pill and works just as well, why not pay half the price for the thing that’s going to make you well?” Thus Barack Obama captured one of two powerful global trends forcing pharmaceutical giants to look for a new business model.

Cost-conscious governments everywhere are bashing pricey patented drugs even as they boost cheap generics. In the past few weeks regulators in America and the European Union have announced separate crackdowns on anti-competitive practices, including “pay-for-delay” deals, whereby big drugmakers pay generics firms to delay the launch of competitors to drugs coming off patent. From Japan to Germany, governments are liberalising drug markets, sweeping away barriers to generics. …